The Steady State Blog

One of the questions I ponder when thinking about a steady state economy revolves around the idea of economic recession.  In the past, recessions and depressions (prolonged recessions) have meant hard times for a lot of folks.  When statisticians measure the size of an economy over time, they can see one of three possibilities:  (1) growth, (2) contraction, or (3) stability.  Typical neoclassical economists have long keyed on the first possibility.  Their main goal along with governments and corporations has been a perpetually growing economy, which avoids the hard times associated with recessions.  This idea has historically held merit – growth was beneficial up to a certain point.  To put it technically, that point is where the marginal benefits of the growth equal the marginal costs.  The trouble is that the costs of growth are now higher than the benefits for the U.S. and the globe, and continued growth is likely to cause even tougher times in the long run than those experienced in a recession.

To achieve an economy with a sustainable scale – one that does not exceed the Earth’s carrying capacity and one that does not use up the resources of future generations, society needs to change the goal from growth to an economy of relatively stable size.  Establishing a steady state economy will require an end to the growth mindset.  Given the current state of ecological overshoot (as documented by the Global Footprint Network), it will even require a fair amount of contraction before settling on an optimal scale.

So what are we to do?  If we continue growing the economy, we face serious and potentially extreme consequences.  If we stop growing or even contract the economy, we face the hardships experienced in previous recessions.  But are such hardships inescapable?  I recently spoke to a friend who worked at Hewlett-Packard (HP) for a period of many years.  Over that period, the company experienced phenomenal growth and employed an increasingly large staff.  At one point, however, revenues and profits took a nosedive, and HP couldn’t afford to pay everyone.  The standard operating procedure for businesses in this situation is to lay off employees.  HP’s innovative solution was to cut every employee’s work time to 30 hours per week, with a corresponding across-the-board pay cut.  HP thought that three quarters time and three quarters pay was a more efficient and equitable solution than firing a quarter of the staff.

There were likely workers who had difficulties dealing with the pay cut, but my friend’s experience was that most people (him included) were glad to have the extra time to pursue interests outside of work.  He noted something else rather astounding – even with the decreased hours, he didn’t see a drop in productivity.  Pretty soon HP’s profits rebounded, and the company reinstated the 40-hour work week at former salary levels.  My friend reluctantly went back to the “normal” work schedule.  What if, instead, employees worked less, spent less money, and spent more time on family, friends, and hobbies?

Herman Daly often points out that economic development is different from economic growth.  Economic development is qualitative and can be increased if the economy enables people to lead more enriched lives.  Society can find creative ways to aim for such development and avoid the tough times associated with the end of uneconomic growth.